Stocks dropped Monday after some companies' announcements supported fears that global growth is slowing. The Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) were in negative territory for the entire session.
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Caterpillar sees higher costs, slowing demand in China
Caterpillar missed expectations for fourth-quarter profit and gave downbeat guidance for 2019, sending shares plummeting 9.1%. Revenue increased 11.2% to $14.34 billion, in line with expectations. Adjusted earnings per share grew 18.1% to $2.55, but fell well below the $2.99 analyst consensus.
Rising material costs, partly due to tariffs, and higher freight expense increased the company's manufacturing costs more than it had expected, said executives on the conference call. Although price increases covered the higher costs, Caterpillar had expected pricing gains to exceed cost inflation. Loan write-offs also hurt profit from the company's financing division.
Looking forward, Caterpillar forecast "a modest sales increase" in 2019, and said construction equipment sales in China would be flat. Guidance of adjusted EPS between $11.75 and $12.75, representing growth of 9% at the midpoint, was below what Wall Street had been thinking. But Caterpillar's executives also pointed out that the company's 25th year of dividend increases has recently landed it a spot on the Dividend Aristocrats list.
NVIDIA lowers guidance for Q4 chip sales
NVIDIA triggered a sell-off in semiconductor stocks and saw its own shares tumble 13.8% after the company slashed its guidance for fourth-quarter revenue by 18.5%, citing weaker-than-expected sales into gaming and data center markets.
The graphics chip maker lowered its Q4 revenue forecast from $2.7 billion to $2.2 billion and decreased its guidance for non-GAAP gross margin a whopping 6.5 percentage points to 56%. Besides the problem NVIDIA has from the collapse of the cryptocurrency market, the company cited "deteriorating macroeconomic conditions, particularly in China," as hurting gaming sales. Perhaps more surprising was it reporting a shortfall in the company's data center sales, saying that a number of expected big deals didn't close, as "customers shifted to a more cautious approach."
NVIDIA will give more information in its Feb. 14 earnings release, but investors were already nervous about 2019, so news of slowing demand after some other disappointing reports added credence to worries that the semiconductor industry could be hitting a speed bump.